Inflation expectations and monetary policy under disagreements

Using a wide range of survey data on Japanese inflation outlook, this study examines two types of disagreements regarding inflation expectations and accordingly, presents monetary policy implications. The analysis reveals three key findings. First, information rigidities are determinants of cross-sectional disagreement among not only households but also experts. Second, survey data indicate dissonance regarding the long-run forecasts of inflation rates between the central bank and economic entities, despite the adoption of a 2% inflation target in January 2013 and the introduction of an unconventional monetary policy (QQE) in April 2013. While short- and mid-term inflation forecasts by households are generally close to the 2% target rate, long-term forecasts fail to converge to the target level. Finally, under the two types of disagreements, the private sector's perception about a monetary policy stance does not significantly differ before and after the introduction of the inflation target and QQE. These findings suggest that the policy regime of the monetary policy dose not abruptly change on basis of perception; that is, there is no upheaval in the agents f perception about a monetary policy stance enough to induce a regime change.